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PaperclipPerfector  3mo ago (text post)   25035 thread views

Culture War Roundup for the week of September 29, 2025

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Yeah this is an underrated terrible part of modern life. I personally think we need to massively reign in credit card companies given the fact that if someone carries a huge debt load for even half a year, it can set them back a decade in their financial life. It's frankly insane what we allow here.

The problem is that progressives (both in terms of race and class) spent decades promoting the message that “access to credit” was a key axis of intersectional inequality and the reason why various communities were locked out of “building wealth” that must be remedied as soon as possible. Of course lending to poor people, because of the inherent credit risk, can only be viable at very high rates to cover the many, many defaults involved.

Either you ban lending to the poor, and progressives whine about people locked out of credit and the opportunity to build wealth, or you allow them to borrow, and face the consequences. Blaming the lenders is ridiculous.

Progressives were never demanding that the poor get increased access to credit cards; banks have never had a problem marketing high-interest, low limit credit cards to the poor. The argument was that it was stupid for banks to deny mortgages to people with jobs who were currently paying more in rent than what the mortgage payment would be if they bought, on the grounds that they were too high a risk. It's also an argument that no one has made in the 20 years since banks went further than the progressives asked them to and started writing mortgages to people who couldn't pay them off if they lived to be a million, then repackaged them as AAA securities.

It's also an argument that no one has made in the 20 years since banks went further than the progressives asked them to and started writing mortgages to people who couldn't pay them off if they lived to be a million, then repackaged them as AAA securities.

Not quite no-one. Kochtopus-funded economist Kevin Erdmann has been arguing for over a decade that a huge part of what is wrong with the post-Great Recession economy is that post-crisis regulations on mortgages have destroyed the bottom half of the owner-occupied housing market for no good reason. Erdmann and Scott Sumner have successfully convinced me that their contrarian theory of the 2008 crisis is probably correct:

  • Pre-2006, rents and prices in a number of cities with restrictive zoning, and in particular greater LA, increased faster than incomes because of a housing shortage. This wasn't a bubble, it was supply and demand.
  • There was a bubble in the "Contagion cities" like Las Vegas, driven by people migrating out of California for cheaper housing, creating a temporary surge in demand which local supply couldn't keep up with in the short term. But that would have resolved itself spontaneously as supply caught up with demand.
  • The national picture looked sufficiently like a housing bubble that the Fed decided to raise interest rates until the bubble burst.
  • Because there wasn't a bubble, this meant raising interest rates high enough to cause a recession.
  • The 2008 banking crisis was caused mostly by the recession, and only secondarily by poor lending practices. Subprime was never large enough to cause the bank losses we saw.
  • The Fed doesn't cut rates fast enough once it is clear we are in a recession and a financial crisis because they don't want to be seen as bailing out irresponsible bankers and homeowners.
  • For 4-5 years after 2008, the main way low interest rates stimulate the economy (by encouraging housebuilding) doesn't work because it is illegal to build in HCOL cities and post-crisis regulations mean nobody can get a mortgage in LCOL cities.

[Mercatus Center] economist Kevin Erdmann

Erdmann and Scott Sumner have successfully convinced me that their contrarian theory of the 2008 crisis [free 70-page report, Amazon book] is probably correct:

Quote from the linked report:

In the standard view of the housing and business cycle of the 2000s, there are at least eight interconnected assumptions:

(4) The boom was fed by deregulation of banking, pressure from government regulators, or both, which led banks to make too many mortgage loans.

We will show that these assumptions are unwarranted. Lending during the housing boom was mostly directed toward affluent households.

I prefer the theory advanced by American Enterprise Institute economist Peter Wallison (free 90-page report (p. 441), Amazon book).

Quote from the linked report:

Before the enactment of the GSE Act in 1992, and HUD’s adoption of a policy thereafter to reduce underwriting standards, the GSEs followed conservative underwriting practices. For example, in a random review by Fannie Mae of 25,804 loans from October 1988 to January 1992, over 78 percent had LTV ratios of 80 percent or less, while only 5.75 percent had LTV ratios of 91 to 95 percent. High-risk lending was confined primarily to FHA (which was controlled by HUD) and specialized subprime lenders who often sold the mortgages they originated to FHA. What caused these conservative standards to decline? The Commission majority, echoing Chairman Bernanke, seems to believe that the impetus was competition among the banks, irresponsibility among originators, and the desire for profit. The majority’s report offers no other explanation.

However, there is no difficulty finding the source of the reductions in mortgage underwriting standards for Fannie and Freddie, or for the originators for whom they were the buyers. HUD made clear in numerous statements that its policy—in order to make credit available to low-income borrowers—was specifically intended to reduce underwriting standards. The GSE Act enabled HUD to put Fannie and Freddie into competition with FHA, and vice versa, creating what became a contest to lower mortgage standards. As the Fannie Mae Foundation noted in a 2000 report: “FHA loans constituted the largest share of Countrywide’s [subprime lending] activity, until Fannie Mae and Freddie Mac began accepting loans with higher LTVs [loan-to-value ratios] and greater underwriting flexibilities.”

HUD’s policy was highly successful in achieving the goals it sought. In 1989, only one in 230 homebuyers bought a home with a downpayment of 3 percent or less, but by 2003 one in seven buyers was providing a downpayment at that level, and by 2007 the number was less than one in three. The gradual increase in LTVs and CLTVs (first and second loans combined to produce a lower downpayment) under HUD’s policies is shown in Figure 4. Note the date (1992) when HUD began to have some influence over the downpayments that the GSEs would accept.

Can I blame the lenders and the progressives?

In general this argument that political pressure has forced businessmen to be immoral is not very convincing for me. I hope to live in a society where generally businessmen have lines they won't cross, like openly defrauding the poor.

They aren't "openly defrauding" the poor. We have all these disclosure laws about credit cards, which among other things tell people how much and how long they'll be paying if they only pay the minimum. The people who get into credit card trouble want to get stuff and pay only the minimum. They may want this because they are stupid and foolish, or they may want it because they figure if they get in deep enough someone will bail them out, but they want it.

Yeah I agree the openly defrauding was inaccurate. I'm angry about it. But you are right it's not fraud, though still immoral imo.

I mean, sure, technically you aren't wrong.

But even with everything spelled out for them, few people appreciate the reality distorting effects of 30% interest. They don't appreciate how quickly it is to get in trouble, or how slow it is to get out. They either never learned, or never really appreciated the rule of 72. They never had pointed out to them that their credit card debt doubles every 2-3 years, while a gold standard S&P500 index fund earning the historical average of 10% takes 7 years to double. They have no grasp of the fact that everything they put on a credit card that is accruing interest is eating up 2.5x more of their precious life than the equivalent amount saved in an S&P500 index fund gives them back. Closer to 10x more than a run of the mill savings account.

Math, and especially interest rates, aren't real to most people. Even explained to them, it doesn't translate into years of their life like it should. It was certainly never taught to me that way, nor I suspect to you. It was only in retrospect, in my 30's, looking at my nest egg thinking "This represents 10 years of my life" did these realizations hit.

Now imagine you never have a nest egg.

If we arrange the world to "protect" people like that, we make life worse for all the rest of us. A lot worse, because these people are so incapable. Just as a world without fast cars and sharp knives is worse than one with them, so is a world without (or with very limited) credit cards or any of the other things those people can hurt themselves with.

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